CPUC OKs SDG&E’s $63M Insurance Costs

By Published On: December 16, 2011

Four regulators voted Dec. 15 to allow San Diego Gas & Electric to recover from ratepayers a total of $63 million for higher wildfire and general liability insurance costs last year. All members of the California Public Utilities Commission agreed recovery of $35.3 million of the total cost was reasonable. However, one commissioner contested allowing the utility to recover the other $28 million of the total needed to pay for utility reinsurance costs without providing more information. Commissioner Mark Ferron, the lone dissenter, sought to delay the vote. He insisted the utility submit an application with a full record to support its recovery of $28 million in reinsurance costs, in place of the abbreviated advice letter process. Typically, reinsurance is what insurers seek from other underwriters to cover insurance claims. Reinsurance is fairly new to the utility industry. “What we are seeing is sour grapes,” exclaimed commissioner Tim Simon at the attempt to delay the matter before the end of this year. “This is a must go.” Commission president Mike Peevey said both the $35.3 million in general and wildfire insurance premiums and $28 million in reinsurance costs were “very reasonable” and “unforeseen”--key criteria for allowing rate recovery developed under what is known as the “Z factor” test. Commissioner Tim Simon developed the criteria, which regulators approved last year. Ferron questioned the dramatic increase in liability insurance and the fairness of imposing the full cost on SDG&E electric ratepayers and not a wider group. He also raised the issue of whether full recovery “would shield SD&GE from future risks,” diminishing incentives to reduce its risk of wildfire. He noted that the utility was held partly responsible for the wildfires four years ago that killed 17, destroyed thousands of structures, and burned 780 square miles. Commissioners Simon, Mike Florio and Catherine Sandoval voted for Peevey’s ruling granting full rate recovery in place of the alternative that would have limited recovery to $35.3 million. The trio noted that last year the CPUC approved full recovery of the utility’s insurance costs because all the requisite “Z factors” were satisfied, as was the case this week. The insurance hike marks the second insurance-related increase in two years. During the CPUC’s final meeting of 2010, regulators voted 3-2 to allow SDG&E to recover $29 million from ratepayers for fire insurance premium hikes after the wildfires in 2007. Going forward, future fire and general liability costs, along with reinsurance premiums, are to be addressed in SDG&E’s General Rate Case.

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